Academic journal article Journal of Southeast Asian Economies

ASEAN-China Free Trade Area Advantages, Challenges, and Implications for the Newer ASEAN Member Countries

Academic journal article Journal of Southeast Asian Economies

ASEAN-China Free Trade Area Advantages, Challenges, and Implications for the Newer ASEAN Member Countries

Article excerpt

I. Introduction

Globalization has provided a dynamic platform on which to sustain high and durable rates of economic growth, structural transformation, and social development for many developing countries. In particular, it has opened up unlimited opportunities for gainful co-operation and integration in trade, investment, and services among countries and communities, including China and most ASEAN members. In this context, the leaders of ASEAN and China decided in Singapore during November 2000 to explore measures to widen and deepen the process of mutual economic co-operation and integration. A year later in Brunei, they endorsed a proposal to set up an ASEAN--China Free Trade Area (FTA) within ten years, and negotiations on trade liberalization for products under the "early harvest" programme were then initiated.

Subsequently, a Framework Agreement on Comprehensive Economic Co-operation (FACEC) between ASEAN and China was signed in Cambodia, in November 2002. The agreement provides for, among other things, the completion of negotiations on trade in goods by mid-2004. It also envisages the operation of a FTA between China and the six older member countries (or "ASEAN-6") from 2010. FTA arrangements between China and the "ASEAN-4" (Cambodia, Laos, Myanmar, and Vietnam) will be in force from 2015. The Framework Agreement is likely to become another milestone in the unfolding process of multi-faceted growth and integration in trade in goods and services and investment among the developing economies of East and Southeast Asia.

Section II of this article discusses the current patterns of trade and investment relationships between China and the ASEAN-4 countries. Section III then considers the potential and opportunities on the demand side, including additional market access in China for resource-based products and intra-industry activities, which can be expected from the proposed ASEAN--China FTA. Section IV examines the supply-side impact on the ASEAN-4, as a result of China's proven competitive strength, recent World Trade Organization (WTO) membership, and proposed free trade arrangements with ASEAN. Due emphasis is given to the additional competition to be managed by the ASEAN-4, in both home and third-country markets, particularly on a wide range of labour- and technology-intensive manufactures. The nature and justification for special and differential (S&D) treatment and flexibility for the low-income and least developed countries of ASEAN are dealt with in Section V, with special reference to the non-WTO members within the ASEAN-4, in the context of the proposed ASEAN-China FTA. The promotion of small and medium-sized enterprises' (SME) competitiveness and capacity-building are among the focal areas of economic co-operation within the Framework Agreement. In this context, Section VI contains two actionable proposals for capacity-building in entrepreneurship development and inter-firm networking within and across borders, and for monitoring and benchmarking enterprise capabilities and competitiveness in ASEAN and China. The final section (Section VII) contains a number of concluding observations on the future challenges of greater interdependence between ASEAN and China.

II. Current Trade and Investment Relationships

There is a significant amount of unrecorded crossborder trade, involving largely consumer goods and raw materials, among the economies of the Greater Mekong Subregion (GMS). Given this qualification, a number of observations can be made from the patterns of trade and investment interaction between the ASEAN-4 and China recorded in 1995 and 2000 (see Table 1). First, China's trade share with the newer ASEAN members has risen, especially in terms of the latter's imports. The exception is Myanmar, where bilateral trade declined appreciably in the late 1990s. Excluding Myanmar, the relative share of merchandise trade between China and the ASEAN-3 (that is, Cambodia, Laos, and Vietnam) more than doubled, from 4. …

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